The ISM Manufacturing Index for April decreased to 57.3% from 59.3% in March.  A spike in raw materials was clearly the biggest red flag, but skilled labor shortage was cited as a universal problem. 

• The New Orders Index was down to 61.2% from 61.9%, but was still the 12th straight month above 60%
• The Prices Index increased to 79.3% from 78.1%, the highest level since April 2011 when it was 82.6%
• The Employment Index dropped to 54.2% to 57.3%, as finding skilled workers remains constrained
• The Backlog of Orders Index jumped to 62% from 59.8%, highest reading since May 2004 when it was 63%
• Prices increased in 17 or 18 industry sectors

Supplier deliveries slowed in April to 61.1%. According to Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management^® (ISM^®) Manufacturing Business Survey Committee, “This is the 19th straight month of slowing supplier deliveries, a continuing constraint to production growth. Lead-time extensions in many areas, supplier labor shortages, and transportation delays and uncertainty in the steel and aluminum markets will continue to restrict production output for the foreseeable future.”

Some key comments from respondents:

• “We are seeing strong sales in the U.S., Europe and Asia.” (Chemical Products)
• “Business is off the charts. This is causing many collateral issues: a tightening supply chain market and longer lead times. Subcontractors are trading capacity up, leading to a bidding war for the marginal capacity. Labor remains tight and getting tighter.” (Transportation Equipment)
• “Shortages of trucks and drivers has impacted delivery times.” (Food, Beverage & Tobacco Products)
• “The recent steel tariffs have made it difficult to source material, and we have had to eliminate two products due to availability and cost of raw material.” (Fabricated Metal Products)
• “Demand is up for products. Commodity pricing for steel and other materials increased due to the proposed tariffs. We are seeing commodity futures coming down. A lot of suppliers are asking for increases, and the team is battling those requests.” (Machinery)
• "[The] 232 and 301 tariffs are very concerning. Business planning is at a standstill until they are resolved. Significant amount of manpower [on planning and the like] being expended on these issues.” (Miscellaneous Manufacturing)
•  “The general outlook for 2018 remains positive and upbeat as we see continued signs of a growing economy and investment in housing and infrastructure.” (Nonmetallic Mineral Products)
• “Business conditions have been good; order book is full and running around 98 percent capacity.” (Primary Metals)

Overall, the report points to strong expansion that's slowed, but strong nonetheless.  So, I think this could be overreaction/adjustment.   

Construction spending in March declined 1.7%, below consensus of +0.5%.  February’s spending was revised upward to 1.0% from 0.01% and January was revised to 1.7% from 0.0%.

• Private construction declined 2.1%
• Private construction was paced by a 3.5% decline in residential spending and a 2.2% decline in commercial spending.
• Public construction was flat for March. 
• Public construction was held back by a decline in transportation spending that was partial off by an increase in highway and street spending.

Total construction spending year over year was up 3.6%.  Overall, construction spending continues to grow, but at a slower pace.

Equity markets were trading down before the economic releases at 10 am but heading lower after ISM and Construction Spending were released.  Overall markets appear to be drifting to the downside on light volume.  Markets tend to fall on their own weight when buying dries up.  Traders appear to be stepping back as they await tomorrow’s FOMC rate decision.